Dell Computer Has a £1 Million Receivable That It Expects

question 20

Multiple Choice

Dell Computer has a £1 million receivable that it expects to collect in one year.Suppose the interest rate on pounds is 15%.How could Dell protect this receivable using a money market hedge?

• A)borrow £1 million pounds today
• B)lend £1 million pounds today
• C)borrow £869,565 pounds today
• D)lend £986,754 pounds today

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Definitions:

Operating Cycle

The duration it takes for a company to purchase inventory, sell it, and then convert the sales back into cash. It reflects the efficiency with which a company can turn its product into cash.

Inventory Turnover

A ratio showing how many times a company's inventory is sold and replaced over a period, indicating efficiency in managing stock.

Accounts Payable

The amount of money that a company owes to its suppliers or creditors for goods and services received but not yet paid for.

Equity Issue

The process of raising capital through the sale of shares in a company, either through public offering or private placement.